Buc & Leverage - I think both sentiments (i.e. leaving the resource in the ground and pacing yourself through this crisis) are valid and are being implemented by a few companies - such as EOG - but EOG is a fortress and doesn't have a BB to worry about.
Even a company like HK (which I dislike because it is truly way over leveraged), can, because of its hedging (~90%) and Capex cutbacks, effectively produce only just a little more than what they've hedged at very good prices. While they have some BB debt to worry about most is term notes.
SSN is not in that position. They are under hedged (~4,566/mth? or ~152 bopd). They have those pesky covenants in the BB of both interest coverage and Debt/EBITDAX coverage. The only way to meet those covenants is profitably produce product and the cash flow scale projected when the credit facility was done.
One of the key costs which is presently not determinable (had to guess using LQ actual and then reduce by 20% is the LOE on a per BOE basis). The completion costs are clearly Capex but wasn't there also a workover rig putting in tubing - and that is Opex cost and wont get added back to EBITDAX.
Given the macro level change I think TB will be looking to renegotiate the terms of the BB to seek relief from those covenants. It's going to cost some coin (I would expect to see 8%+ interest rate) but it is "cheap" compared to the alternative. Whether SSN will be required to pay back some of the BB after redetermination in April is key also.
I guess what I would like to see before I ever invested would be some believable forward guidance relative to production, cash margin and EBITDAX. That way you could see HOW they are going to pace themselves through the current crisis.
Wasn't oil supposed to go up by now?
SSN Price at posting:
1.3¢ Sentiment: None Disclosure: Not Held
